Israel and the China Dilemma

Joseph Puder, Are the opportunities greater than the risks? In the late spring of 2020, US Secretary of State Mike Pompeo visited Israel.

His visit came after Israel formed a coalition government between Prime Minister Benjamin Netanyahu’s Likud and Benny Gantz’s Blue and White Party. Pompeo, while endorsing Israel’s rights to Judea and Samaria, had a blunt message for his Israeli friends: “Beware of China.” Pompeo added, “We don’t want the Chinese Communist Party to have access to Israeli infrastructure, Israeli communication networks, and the kind of things that endanger the Israeli people and the ability of the US to cooperate with Israel.”

Pompeo’s gently expressed admonition to Israeli officials was not new. In the 1990’s, the US pressed Israel to cancel a deal to sell the Phalcon Intelligence surveillance aircraft to China. Israel backed down, and was compelled to return the $250 million to Beijing that the Chinese had invested in the project.

For Israel, the situation was terribly uncomfortable. It was forced to choose between its closest and most trusted ally – the US, and a great business opportunity with China. There was little hesitation however, on Israel’s part. The US will always be Israel’s top priority.

In fact, almost immediately following Pompeo’s warning, the Israeli government decided to pass on a bid by the Israeli affiliate of the Hong Kong conglomerate CK Hutchinson, to build a $1.5 billion water desalination plant in southern Israel. The contract was awarded instead to a local Israeli company named IDE Technologies.

American culture is so pervasive in Israel that many Israelis might quip that Israel is the 51st state of the United States. Every American fad and fashion is almost immediately adopted in Israel. Thankfully for Israel, the US and Israeli interests in the region, although not identical, they come as close as two countries can be. Israel moreover, has voted with the US more often than practically any other country.

While the US views China as a rival, and by some in the US establishment as a potential enemy, Israel sees China as an opportunity. China is now the second largest economy after the US. Yet, insofar as Israel’s security is concerned, China is also a primary supplier of arms, technology, and probably intelligence to Iran, Israel’s major enemy.

The US considers China as a threat in various ways: strategic, commercial, and technological. Today, China is no longer confined to its own region. It operates in Africa, throughout Asia, in Ecuador (Latin America), and is seeking to expand its commercial deals, political influence, and national interests globally, including the Middle East. China has upgraded its military, and has laid claim to the Paracel and Spratly Islands in the South China Sea, which are also claimed by Brunei, Malaysia, Philippines, Taiwan, and Vietnam. China took over Hong Kong and is suppressing democracy there. Taiwan is under constant threat from Beijing.

Commercially, China’s e-commerce giant company, Alibaba, outstrips America’s Amazon in worldwide sales.  With its Belt and Road ventures, China is penetrating into global markets by extending loans, particularly to poor countries that often lag in repayments. When this occurs, China takes over the project by leasing it for 99 years. That is how China is obtaining strategic outposts, and commercial assets. China is also stealing technology (intellectual property) everywhere, particularly from the US. Israel’s high-tech is also an important target for Beijing.

Israel’s Prime Minister Benjamin Netanyahu’s state visit to China in 2013 opened the door to more extensive commerce between the two countries. During that time, Hong Kong billionaire Li Ka-Shing contributed $130 million to open a branch of Israel’s highly acclaimed technological institute – Technion (Haifa), in Shantou, the Chinese city of over 5 million people, located 230 miles northeast of Hong Kong.

Currently, four state owned Chinese companies are involved in major infrastructure projects in Israel. They are operating on the following projects: a) the expansion of the Ashdod port; b) partial construction of a new terminal by the Haifa port (the Chinese have operation rights for 25 years); c) construction and operation of the Tel Aviv light rail; d) digging of the Carmel (Haifa area) tunnels.

Haifa and Ashdod are Israel’s main shipping ports on the Mediterranean, where 99% of its trade goes through the sea. The Tel Aviv light rail will be running close to the Kirya – where Israel’s Defense Force (IDF) main headquarters is located. This could expose Israel to a cyber intelligence attack. China would have an opportunity to conduct surveillance, and given China’s close relations with Iran – Israel’s arch enemy, Israel must consider the risks. Furthermore, one of the Chinese companies working on Israel’s infrastructure projects is CCCC Dredging and its subsidiary includes CHEC, which has worked with the Chinese military, and is now partaking in developing the Ashdod port, located next to an IDF naval base.

The chief of Israel’s General Security Service (Shabach) or Shin Bet, Nadav Argaman, warned (January, 2019) that, “Chinese influence in Israel is particularly dangerous in terms of strategic infrastructure and investments in larger companies.” Argaman argued that the Knesset needs to pass legislation to monitor foreign investments in Israel. He added, “There are gaps in Israeli law in regards to its security needs in terms of overseeing foreign investments.”

Israel cannot afford to let a Chinese company operate the port of Haifa. Should Israel be in a war situation with Iran or Hezbollah, it would constitute a disastrous situation for Israel’s security. Additionally, the US warned Israel that should China run the port of Haifa, the US Six Fleet might limit its visits there.

Chinese companies currently control or influence a quarter of Israel’s high tech sector. Huawei, a giant Chinese telecommunications company that has been investigated by the US Congress, is also invested in Israel. The New York Times reported (10/8/2012) that the House Intelligence Committee, after “a yearlong investigation, it had come to the conclusion that the Chinese businesses, Huawei Technologies and ZTE, Inc., were a national security threat because of their attempts to extract sensitive information from American companies, and their loyalties to the Chinese government.” Apparently, all Chinese companies are required to report to the Chinese government…

Israel needs to adopt a more comprehensive policy to address both US sensitivities and its own national security considerations. Australia and Canada have done it. They have tightened their foreign investment oversight regimes. Israel must do likewise. In recent years, Israel has not done anything that looks like defense deals, or something that can be considered of dual use with China. Israel, however, must look ahead and consider that China might become a threat to the region. The Chinese military already has a presence at the mouth of the Red Sea in the Horn of Africa, in Djibouti, and is seeking to have a role in Syria.

Opportunistic commercial deals with China notwithstanding, Israel must consider its security first. The Jewish state needs to devise a clear plan that specifies what can and cannot be sold for strategic reasons. Mike Pompeo’s warning, “Beware of China,” must guide Israeli policymakers.